F1 seeks to invoke bank guarantee of Rs.350 cr

Snapshot: India F1 would most likely be off the calendar for the year 2015 too. Read the complete story.

Troubling times for Jaiprakash Associates (owner of the subsidiary Jaypee Sports International Ltd. - JSIL) does not seem to end since Formula One seeks to encash bank guarantee of Rs.350 cr which the Jaiprakash had furnished in the form of standby letter of credit (SBLC) to setup the business.

Formula One World Championship Ltd (FOWC) and JSIL entered into the contract to organise the F1 event in India between 2011 – 2015. However, India was dropped from F1 calendar for the year 2014 as well as 2015 following a tax dispute with the Uttar Pradesh government, which classifies F1 as entertainment instead of sport. This results in levying of entertainment tax for spectators and duties related to equipment logistics.

JSIL had sought relief from Indian tax authorities on the money that was supposed to be paid and Formula one had sought Authority for Advance Rulings (AAR) under which, the money that it received from the Indian companies cannot be taxed in India under double taxation avoidance agreement (DTAA). This has been challenged by Indian tax department.

While the Formula one wants to invoke the guarantee and move the money to a bank in the UK, Jaiprakash Associates have opposed the move. Jaiprakash has argued that until the time attachment order is vacated, SLBC cannot be invoked. The court has allowed an extension of the guarantee till March 31, 2016 which was expiring on December 1, 2015. The court has also said that this can be extended further by mutual consent until the time tax dispute with the government is resolved.

After the attachment order was issued by the India’s income-tax department, and Jaiprakash Associates attached the SLBC, JSIL was absorbed by the parent company Jaiprakash Associates.

The matter is sub judice and the hearing is due on November 27 under the division bench comprising Justices GS Kulkarni and MS Sanklecha. Formula one governing body, FIA, approves the following season's calendar in September, which is ultimately finalised in December. Therefore, the chances of a likely Formula One race in India in 2016 are also pretty scarce.